U.S. Budget: Why Class Feuding in the Debt Talks Helps America

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The debt talks are starting to sound like a cross between a Starbucks menu (do you want your bargain short, tall, grande, or venti?) and an old-time Chinese-restaurant menu (pick one tax hike from column A, three spending cuts from column B). Don’t worry. Whether this works out or not, the negotiations have already given us the gift of “class warfare.”

Let’s face it, if there’s a grand (or grande) bargain, what will the presidential candidates argue about in 2012? Failure means our future direction on taxes, spending, Medicare, and Social Security will be fought out in glorious Technicolor on the campaign trail. That will inevitably lead to conversations about jobs, income inequality, and how to get U.S. capitalism back on track. In short, class warfare.

If you watch a lot of TV, especially cable, you may have noticed that on these bedrock issues, Democrats and Republicans live on different rhetorical planets. What Republicans call “class warfare,” Democrats call "fairness" and "balance." Democrats refer to upper-income people as “the wealthy” and want to raise their taxes. Republicans speak fondly of these people as “job creators” and want to lower their taxes. Republicans say raising their taxes would be “job-crushing.” Democrats say it would be “shared sacrifice.”

We’ve been in the midst of pitched class warfare since April, when President Obama gave a combative speech rejecting GOP budget proposals such as ending government insurance under Medicare and instead giving seniors help to buy private policies. “The president is committed to class warfare,” presidential candidate Michele Bachmann said on Fox News. “He’s always attacking wealth creation.”

Wealth creation seems to be on course, at least for the already wealthy. A New York Times analysis found that median annual pay last year for top executives at 200 large companies was $10.8 million, 23 percent higher than in the year before. Median pay last year for 100 million full-time wage and salary workers was $752 a week, or about $39,000 a year, according to the Bureau of Labor Statistics. The weekly pay was 0.5 percent more than in 2009, an increase that did not keep pace with 1.3 percent inflation.

Wage stagnation is in fact nothing new. From 1979 to 2005, average income rose $6 million for households in the top 0.1 percent and $200 for those in the bottom fifth, according to the Economic Policy Institute. And that was for people with jobs. Millions of others are struggling to hold on to their homes, marriages, and mental health in the face of long-term unemployment.

Beyond compassion, there are reasons to be unsettled by this state of affairs. One is that people with stagnant or nonexistent wages don’t have money to spend, which hobbles economic recovery. Another is the threat of instability if people are poor, jobless, or stressed for too long. Historians point to the Gilded Age as a time when huge fortunes, widespread hardship, corporate corruption, political protest movements, and militant labor unrest set the stage for government to regulate business and provide a social safety net.

Things have not come to that pass—the unemployed are not storming the barricades—but Democrats nevertheless seem to be salivating at the idea of a 2012 campaign about class warfare. “Craft a banner and run on it,” pollster Stan Greenberg told me with a laugh. He added that “we poll in many states. In every state in which you’ve got a clear choice on how to address budget priorities, voters want the wealthy to pay a fairer share. Republicans are in a dangerous position.”

David Axelrod, a senior political adviser to Obama, predicts Republicans won’t be able to sell the idea that “basic fundamental fairness and equity issues” are class warfare. “It’s nonsense, and it’s not something that people are going to accept,” he told me. “I don’t fear that debate. It’s a false debate.”

Republican strategist Jim Dyke says Obama is using the tactic to convince average Americans that he’s on their side and Republicans aren’t—and that will be a tough sell. “Based on the impact the president’s economic policies have had, with high unemployment, slow growth, and much higher deficits and debt than when he took office, I’m not sure people are going to buy into that,” Dyke told me.

He and other Republicans say they are just calling it as they see it—and they see class warfare. “The phenomenon of calling for taxes on wealthy people just because they’re wealthy has that feel,” says Douglas Holtz-Eakin, a conservative economist who advised the John McCain campaign and now heads the American Action Forum. Is Obama picking on the wealthy because they’re wealthy, or because he thinks the country needs their help? Regardless, Holtz-Eakin suggests that Republicans would be smarter to center their appeal on the jobs that would be lost if the job creators have less money to create them. “Those most harmed are those who most need jobs,” he says.

Obama pledged in 2008 to roll back Bush-era tax cuts on the most affluent Americans. He has been unable to deliver thus far and will be making the case again. But we probably won’t hear a repeat of the language he used in his famous conversation with Joe the Plumber. “Right now everybody’s so pinched,” Obama said in that spontaneous chat in an Ohio neighborhood, “that business is bad for everybody, and I think when you spread the wealth around, it’s good for everybody.”

That’s not exactly Marxism; it’s more like what Henry Ford was thinking when he doubled wages for his autoworkers. He said he wanted them to be able to buy the cars they were making. Still, the phrase gave Republicans a way to brand Obama as a socialist who wanted to redistribute wealth.

Neither is Obama likely to repeat Al Gore’s “people vs. the powerful” rallying cry in 2000. The phrase was so populist and confrontational, it seemed out of whack with Gore’s cerebral personality and his own place in the pecking order: affluent vice president who had followed his dad into the Senate. The same disconnect would be true for Obama and, as with Gore, give Republicans an opening on the hate-the-wealthy front. Greenberg says the slogan actually boosted Gore’s campaign, but he doesn’t recommend recycling it. He suggests an Obama pitch along the lines of “everyone should contribute” to “an economy that works for all.”

Polling for the most part backs up Democratic positions; as Obama has said, Americans are already sold on his approach to debt reduction (a combination of higher taxes and spending cuts). Yet Republicans captured the House in 2010 and could do well in 2012 if they come up with a sympathetic way to frame their views.

That probably will not involve lamenting, as Sen. Ron Johnson (R-Wis.) did recently during a floor debate, “how incredibly dispiriting” it is for business owners these days, what with “leaders in Washington” attacking and demonizing them “day in and day out.” It’s a safe bet the unemployed are far more dispirited.

Democrats are already contrasting job growth under Ronald Reagan and Bill Clinton—in the years after they raised marginal taxes on the wealthy—with job shrinkage under George W. Bush and his tax cuts. Holtz-Eakin says there are many elements to economic policy and “simple correlations between taxes and economic growth are naive.” Beyond that, he says, “tiny levers like the U.S. income tax” can’t counteract global forces that have depressed income for many Americans. “In the end, all roads lead to education. People have to have the skills that are valued in the workplace.”

Both parties actually agree on that, and on some of the education innovations Obama is promoting through incentive grants. But the consensus breaks down, naturally, over spending. Axelrod says education cuts amount to “slashing the ability to create American opportunities of the future. They seem to be marching in the wrong direction on this.”

Holtz-Eakin counters that we need more accountability, not more money. “We’re spending twice what we did 20 years ago with no demonstrable improvement in achievement,” he says.

It’s worth noting Obama’s response this month when GOP debt negotiators proposed that students start repaying loans while they’re still in college. The president said he wasn’t going to “screw students” while holding harmless corporations and rich people like himself.

Whether you label that kind of thinking class warfare or shared sacrifice, this is just the first round. Obama and his Republican challengers will be battling over these issues right through November 2012, and that’s a good thing. It’s an argument the country needs to hear.